Home prices - bubble? (Chicago: real estate, crime, mortgages)

[JJski]

Anyone believe we are in a bubble- are home prices too good to be true for owners? Is a correction coming in values also including most desirable areas typically shielded?

Just curious on thoughts as many CD folks live, sleep and breathe this data.

Please be nice and thoughtful- not looking for flame war here just cross-board mindful opinions.

[Logic87]

In normal times I would say yes. There is an artificially high demand for homes in the suburbs due the events in the last year and eventually as things open up this demand will shift back to the city. If there is a “correction” it won’t be anywhere near the level of 2010 and the correction will most likely be in the single digits.

However, inflation is another factor to consider and even if demand dwindles and/or interest rates increase, I think home prices might not be effected much if inflation becomes a concern. Home prices tend to follow inflation and if the cost for goods and other services increase then home prices will probably increase as well.

If I had to predict what will happen in the next few years it would be that home prices stabilize in the Chicagoland area. High property taxes will hamper home appreciation seen in other parts of the country.

[Berteau]

This is the wrong forum for this question and has plenty of discussion in the real estate forum.

[Hiruko]

Originally Posted by JJski

Anyone believe we are in a bubble- are home prices too good to be true for owners? Is a correction coming in values also including most desirable areas typically shielded?

Just curious on thoughts as many CD folks live, sleep and breathe this data.

Please be nice and thoughtful- not looking for flame war here just cross-board mindful opinions.

From a local perspective, I think that the Chicagoland area will see a significant correction. There is no explosion in household formation or population growth to justify the price appreciation and increased competitiveness in some of these markets. However, the significance of that correction will depend on a lot of variables like interest rates, credit availability, and inflation. I think that inflation is something on the horizon that so few are talking about. It would not surprise me if we find ourselves in a recession within the next few years. Also, some posters have posted about an increase in demand in the suburbs. This is true. But, it is also true that the urban and inner-ring suburban communities have also seen a massive increase in interest too.

[ToriaT]

I don't think there is a bubble. Its not about household formation or population growth, its about number of new houses that have been built annually and those numbers have been down.

[fusillirob1983]

Originally Posted by ToriaT

I don't think there is a bubble. Its not about household formation or population growth, its about number of new houses that have been built annually and those numbers have been down.

I think that's a piece of it, for sure. Lower new housing starts, lower existing inventory because some people in a later period of their life have delayed moving during the pandemic, and low interest rates have all contributed to the rise in prices. As those change (unknown if it'll be gradual or drastic), some of the air will be taken out. It's not a bubble in the sense that people have been given mortgages they can't afford in 2-3 years like '07-08.

[wjj]

I don't think so. In many of the Chicago suburban areas prices are still below where they were 15 years ago. I know mine is. People are still selling houses at a loss if they bought in 2006-2007. Sometimes significant losses. Hard to call it a bubble when you have just been treading water for the last 15 years. It is similar elsewhere too. Our other house in SW Florida has appreciated significantly but only because we bought at the absolute bottom of the market in that area (late 2011). Our neighbor who bought five years earlier is still in a loss position from his original purchase price in 2006. And in a big loss position when you add in all the improvements he's made. I think one has to look a longer term trends and not just year-to-year. If you view your home as an investment (and I do not), having a negative return over 15 years is not a great way to make money. And in my mind does not indicate a bubble.

[Grlzrl]

Not until they get the crime under control in the city.

[fusillirob1983]

Originally Posted by Grlzrl

Not until they get the crime under control in the city.

I'd bet my house this has little to do with the significant rise in suburban home prices.

[Avondalist]

Back in 2006-2007 there were some parts of the country like the Great Plains which did not experience a bubble. And that was a huge bubble.

I say this because I think Chicago up until very recently was missing out on the unsustainable price increases elsewhere in the country. I think this is mostly good, because I value affordable housing for first time buyers as well as those trading up. It's hard to watch sometimes though because it seems like many are getting huge windfalls.

I think Chicago has quite a bit to go to catch up to the frothiness of other markets.